Summary of Board Decisions

Summary of Board decisions are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions are included in an Exposure Draft for formal comment only after a formal written ballot. Decisions in an Exposure Draft may be (and often are) changed in redeliberations based on information provided to the Board in comment letters, at public roundtable discussions, and through other communication channels. Decisions become final only after a formal written ballot to issue an Accounting Standards Update.

Issue 13-D, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”

A performance target that could be achieved after the requisite service period should be treated as a performance condition that affects the vesting of the awards. A reporting entity would apply existing guidance in Topic 718, Compensation—Stock Compensation, as it relates to awards with performance conditions that affect vesting. That is, compensation cost would be recognized if it is probable that the performance condition will be achieved. The total amount of compensation cost recognized during and after the requisite service period would reflect the number of awards that are expected to vest and would be adjusted to reflect those awards that ultimately vest.

No additional incremental disclosures would be required by this Issue.

The amendments in the proposed Update would be applied prospectively to share-based payment awards granted or modified on or after the effective date. Early adoption would be permitted. Transition disclosures in Subtopic 250-10, Accounting Changes and Error Corrections—Overall, would apply in the period of adoption.

Issue 13-G, “Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity”

For a hybrid financial instrument issued in the form of a share, an entity would determine the nature of the host contract by considering all stated and implied substantive terms and features of the hybrid financial instrument, weighing each term and feature on the basis of relevant facts and circumstances. That is, in determining the nature of the host contract, an entity would consider the economic characteristics and risks of the entire financial instrument including the embedded derivative that is being evaluated for separate accounting from the host contract.

In evaluating the stated and implied substantive terms and features, the existence or omission of any single term or feature, including a fixed-price, noncontingent redemption feature, would not necessarily determine the economic characteristics and risks of the host contract.

No additional recurring disclosures would be required by this Issue.

The amendments in the proposed Update would be applied on a modified retrospective basis to existing hybrid financial instruments (issued in the form of a share) as of the beginning of the annual reporting period for which the proposed amendments are effective. Retrospective application would be permitted to all relevant prior periods. Early adoption also would be permitted.

The Board discussed its tentative decision at the May 23, 2013 comment letter summary meeting to address the need for more relevant information solely by expanding financial statement disclosures. The Board tentatively decided that expanded disclosures were insufficient; it would also require repurchase to maturity transactions to be accounted for as secured borrowings in addition to requiring the following new disclosures for certain transfers of financial assets accounted for as sales (in place of those proposed in the January 2013 Exposure Draft):

Information necessary to understand the nature of the transactions, the transferor’s continuing exposure to the transferred financial assets, and the presentation of the components of the transaction in the financial statements:

The carrying amounts of assets derecognized as of the date of the initial transfer in transactions for which an agreement with the transferee remains outstanding at the reporting date, by type of transaction (for example, repurchase agreement, securities lending, sale and total return swap, and so forth). If the amounts have changed significantly from prior periods or are not representative of the activity throughout the period, a discussion of the reasons for the change should be disclosed.

Information about the transferor’s ongoing exposure to the transferred financial assets by type of transaction:

A description of the arrangements that result in the transferor retaining exposure to the transferred financial assets by type of transaction

The risks related to the transferred financial assets to which the transferor continues to be exposed after the transfer

As of the reporting date, the following amounts to provide users of financial statements with information about the reporting entity’s maximum exposure to financial assets that are not recognized in its statement of financial position:

The fair value of assets derecognized by the transferor for transactions described in paragraph (a) by type of transaction.

(Revised 10/28/13) Amounts recorded in the statement of financial position arising from the transaction by type of transaction in paragraph (a), for example, the carrying value or fair value of forward repurchase agreements or swap contracts. To the extent these amounts are captured in the derivative disclosure requirements under paragraph 815-10-50-4B, an entity should provide a cross-reference to the appropriate line item in the disclosure.

The Board tentatively decided not to require the following new disclosures for transfers of financial assets accounted for either as a sale or as a secured borrowing, but it agreed to solicit feedback on the disclosures in limited outreach meetings:

Information about the asset quality of transferred financial assets to provide financial statement users with an understanding of the risks inherent in the transferred financial assets with separate presentation of the following:

For transferred financial assets derecognized for which an agreement with the transferee remains outstanding at the reporting date, by type of transaction (for example, repurchase agreement, securities lending, sale and total return swap, and so forth):

A disaggregation of the gross proceeds arising from the transaction by the class of financial assets that were transferred in accordance with paragraph 820-10-50-2B

The fair value of the financial assets transferred for each class of financial assets in paragraph (a)(1)

Weighted-average contractual duration for each class of financial assets in paragraph (a)(1)

A qualitative discussion of any obligation arising from a decline in the fair value of the transferred financial assets.

For transferred financial assets for which an agreement with the transferee remains outstanding at the reporting date that continue to be recognized in the statement of financial position in transfers accounted as secured borrowings, by type of transaction (for example, repurchase agreement, securities lending, sale and total return swap, and so forth):

A disaggregation of the gross obligation arising from the transaction by the class of financial assets that were transferred in accordance with paragraph 820-10-50-2B. Total borrowings under those agreements should reconcile to the amount reported in accordance with paragraph 210-20-50-3(a), before any adjustments for offsetting

The fair value of the financial assets transferred at the reporting date for each class of financial assets in paragraph (b)(1)

Weighted-average contractual duration for each class of financial assets in paragraph (b)(1)

A qualitative discussion of any obligation arising from a decline in the fair value of the transferred financial assets.

The Board tentatively decided on the following scope for the disclosures:

Transactions that comprise a transfer of financial assets to a transferee and an agreement done in contemplation of the initial transfer with the same transferee that results in the transferor retaining substantially all of the exposure to the return of the transferred financial asset throughout the term of the transaction.
The Board decided to affirm the decision in the January 2013 ED to eliminate the current accounting requirements for linking repurchase financings in Topic 860, Transfers and Servicing (originally issued as FASB Staff Position FAS 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions).

The Board decided to add new implementation guidance to Topic 860 to clarify the assessment of the substantially the same characteristics within effective control for dollar roll transactions involving the transfer of an existing agency mortgage-backed security and a forward To Be Announced (TBA) repurchase agreement. The Board decided that the implementation guidance should note that a forward TBA dollar roll without trade stipulations would not be expected to result in the return of a substantially the same financial asset. However, a forward TBA dollar roll with stipulations could be considered to result in the return of a substantially the same financial asset.

The Board discussed transition methods and decided on a cumulative-effect approach for all changes in accounting. Under this approach, an entity would recognize a cumulative-effect adjustment to beginning retained earnings as of the date of adoption. The Board decided not to require additional transition disclosures beyond those that are already required in Topic 250, Accounting Changes and Error Corrections.

The Board directed the staff to prepare a staff draft of the amendments to Topic 860 based on the decisions reached. Additionally, the Board directed to the staff to conduct limited outreach on various aspects of those decisions. The staff will present the outreach findings at a future Board meeting.

Based on the outreach findings, the Board will discuss the possibility of reexposing its decisions at a future Board meeting. In addition, the Board will discuss at a future meeting when the changes would be effective (including whether the effective date for public and nonpublic entities should be the same or different), and whether entities would be allowed the option of early adopting the changes before their mandatory effective date.